chalk talk | PLANADVISER March/April 2013

Regulatory Tune-Up

A reality check for advisers

By Steff C. Chalk | March/April 2013
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As a never-ending student of our industry, I periodically make observations at odd intervals and for unusual reasons. Doing so gives key players in our industry yet another data point to ponder, be it predictive, historical or both.

Retirement plan advisers had been singing the virtues, and the blues, associated with 408(b)(2), up until last fall. Upon the regulation’s heralded arrival, a fairly large chorus of “So what?” was heard throughout plan sponsor land.

In the absence of pending regulation, á la 408(b)(2), what can retirement plan advisers discuss with plan sponsors as the “next big idea”?

Where Are We Headed?

I suggest that all retirement plan advisers take note of what is circling the perimeter of our industry. Not paying attention to the shifting landscape today could be deleterious to your future. What’s going on, you ask?

• The authority to “make the rules as we go along” seems ever-present around the individual retirement account (IRA) asset base. For those advisers who incorporate IRAs and IRA rollovers into your practice, how do you position your chips on industry oversight? How will your business be impacted if new oversight steps into place? Can you continue “business as usual” if the IRA rollover rules are rewritten? If you employ an active IRA strategy in your practice, how prepared are you to either move out of the IRA rollover business or to lower prices in hopes of making it up in volume?

• What is your plan for the pending change that will occur with the rewriting of the fiduciary standard of care? We can be certain of one thing: A new definition of fiduciary means that the new standard will either increase the level of care a fiduciary is required to perform (unlikely); or the level of care required when serving as a fiduciary will decrease (more likely). If a new standard results in a reduction in the standard of care, where does the adviser turn for direction on how to deliver to a superior standard—a standard even superior to a fiduciary one as defined by the courts?

• What have you done or do you plan to do to incorporate either plan optimization or behavioral finance into the plans you oversee? Advisers need to have a solid strategy as to how they will incorporate outcome-based anything. If you do not, your competition does. Your clients will find it in one location or another!

• What is your proactive strategy relating to the retirement readiness of the participants and the overall health of the plan? If your retirement readiness strategy does not exist today, when do you intend to impose one? Are you ready to make the adjustment to know the income replacement ratio status for each and every one of your plans?